Massive offer expected for Cadbury takeover

British company Cadbury is ready for a massive takeover offer from American food giant Kraft.

Transcript

TICKY FULLERTON, PRESENTER: After rejecting a $20 billion takeover offer, British company Cadbury's is getting ready for another massive offer from North American food giant Kraft. The mega-merger would create a company with an annual turnover of $60 billion, and Cadbury shareholders are enjoying a sweet ride as its stocks surged nearly 40 per cent on the news. Desley Coleman reports.

DESLEY COLEMAN, REPORTER: Cadbury is one of the world's best-known brands and it's been making chocolate for nearly 200 years.

Kraft, the world's second biggest food company, has also been around a long time and is prepared to pay $20 billion for the entire Cadbury portfolio.

IRENE ROSENFELD, CEO, KRAFT FOODS: This combination would allow us to drive growth while retaining a diversified portfolio. We would have an outstanding platform in confectionary, with global leadership positions across segments. And this platform would be highly complementary to our global biscuit business.

MARTIN DEBOO, INVESTEC SECURITIES: Deals of this size are rare events. There have been 10 deals of this sort of size in the last 10 years. So they're relatively unusual events. In that sense, it's always a surprise when something like this happens.

DESLEY COLEMAN: The UK investors welcomed the surprise, with Cadbury shares surging for the second day in a row. But the management of Cadbury rejected the offer, saying it undervalues of the historic business.

The head of Kraft says Cadbury remain a takeover target.

IRENE ROSENFELD: We believe Cadbury has limited opportunity for future value creation as a stand-alone entity in an increasingly competitive global environment. And we have a proposal that we believe delivers an attractive premium to Cadbury shareholders and substantial value to both Cadbury and Kraft Food shareholders.

DESLEY COLEMAN: Kraft is offering Cadbury shareholders the equivalent of $5.73 cash and a quarter of a new Kraft Foods share.

Cadbury employs more than 50,000 people around the world. And while Kraft says jobs in the UK are safe, it couldn't rule out losses in Cadbury's other operations, which are spread across more than 60 countries.

JOE CLARKE, BRITISH UNION SPOKESMAN, CADBURY: We're cautious in relation to this approach at this moment in time. Quite clearly, Kraft are making some statements which are positive, but we need to know some more detail in relation to that.

DESLEY COLEMAN: In Australia and New Zealand, Cadbury employs 3,200 people and produces Dairy Milk chocolate, Pascal lollies and the Natural Confection products.

Sissel Rosengrem from BIS Shrapnel says if the merger went through the Australian market is unlikely to change.

SISSEL ROSENGREN, RETAIL ANALYST, BIS SHRAPNEL: I don't think necessarily that the Australian consumer will see any difference. Both companies have iconic brands out here, and it's every expectation that the merged company will keep those key brands.

In a statement to Lateline Business, the Australian Competition and Consumer Commission said, "It has not yet given this possible transaction any consideration. ... But the ACCC expects to review this, for possible competition effects in Australia, should such a transaction eventuate."

And while Cadbury management isn't convinced about the cheese and chocolate mix, it's unlikely that this will be Kraft's only offer.